A new stock exchange in Dallas, Texas, is set to begin securities trading next year, with plans to start listing companies by 2026. The Texas Stock Exchange (TXSE) Group has secured $120 million in funding from over two dozen investors, including Larry Fink's Blackrock and Kenneth Griffin's Citadel, making it "the most well-capitalised exchange entrant to file a registration with the US Securities and Exchange Commission (SEC)."
Addressing Market Concerns and Business-Friendly Environment
The fully electronic TXSE will list various securities, including exchange-traded products and American Depositary Receipts (ADR) for non-US firms. The physical headquarters in Dallas is expected to employ around 100 people, according to The Dallas Morning News.
The exchange aims to offer a business-friendly environment by challenging new costly regulations and rising compliance expenses at incumbents like the New York Stock Exchange (NYSE) and Nasdaq. For instance, Nasdaq's rule mandates companies listed on the exchange to divulge details about board diversity and explain why the board doesn't have "diverse directors."
Industry Insights and Regional Impact
The TXSE is well-positioned to address a worrying trend in the US corporate sector. Factors like high litigation costs, stringent disclosure mandates, intensifying shareholder activism, and public criticism have kept many private firms from going public. By staying private, companies have avoided much of the burden and cost of regulatory requirements to focus on future roadmaps.
In the US, the number of public firms has fallen by over 50% since the '90s, as many are increasingly choosing to stay out of the public eye and influence of public markets.
In his April shareholder letter, JPMorgan CEO Jamie Dimon expressed concern about shrinking public markets. "This trend is serious and may very well increase with more regulation and litigation coming. Along with a frank assessment of the regulation landscape, we really need to consider: Is this the outcome we want?" he wrote.
There have been past attempts at regional stock exchanges, like the Chicago Stock Exchange and the Philadelphia Stock Exchange. Still, many have either failed or merged with the industry leaders. As trading volumes remained concentrated between the NYSE and Nasdaq, it created hurdles for low-volume exchanges to secure substantial orders from investors.
The TXSE Group acknowledged that "corporate issuers and exchange-traded product sponsors" seek more "stability and predictability" around listing rules and related costs. They see this growing shift in US equities markets as an opportunity to grab market share in a sector where the NYSE and Nasdaq dominate trading volumes.
TXSE Group CEO James Lee believes that this dynamic scenario, where more investors and companies are looking for alternatives to trade and list equities, is driving more volumes to exchanges. He added that the Texas exchange will drive competition around "quote activity, liquidity, and transparency" to create "reliable markets that benefit investors and global issuers."
Why Texas?
The state and its southeast quadrant neighbours form an economic powerhouse driving economic expansion in the US. As a major business hub, there are over 5,200 private equity-funded companies and 1,500 listed firms across the region. Many private firms are already planning for public listings, and the TXSE can become their preferred gateway to public markets.
While the TXSE Group highlighted that Texas accommodates more Fortune 500 companies than any other state, Lee said, "We're thrilled to bring to fruition the long-held vision for a national stock exchange in Texas" and that "this is an opportune time to build a major, national stock exchange in Texas."
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